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Since the backdating scandal began unfolding nearly two years ago, regulators and outsiders have been wondering why so many public companies — many of them in the technology industry — began issuing undisclosed, misdated stock options grants around the same time.
Was it spread through word of mouth between directors who served on different boards?
Both of their statements about their separate settlements with the SEC note that they did not pay a monetary penalty to the commission, but rather agreed to a permanent injunctions against future violations of the reporting, books and records, and internal-control provisions of the federal securities laws.
“Lisa had no responsibility for accounting at either company, had no idea that either company violated options accounting, and did not personally benefit from misdated option grants at either company.” Both KLA and Juniper have settled related charges with the SEC without admitting or denying guilt.
The complaint alleges violations of Sections 10(b) and 17(a), as well as the books and records and proxy provisions. Second, the court held that under Section 9(b) the SEC must plead fraud with particularity.
This resulted in materially false disclosures and overstated net income at KLA and Juniper. Since the SEC argues that the statute is subject to equitable tolling, the court granted an opportunity to amend the complaint.
Berry based on option backdating claims for the time period 1997-2002. Berry routinely used hindsight to identify dates with historically low stock prices, facilitating the backdating of option grants by KLA’s stock option committee. Berry established a similar backdating process at that company, creating minutes of fictitious stock option committee meetings to document false grant dates. This applies to any relief that is a penalty but not to the equitable relief. In contrast, a request for disgorgement is not a penalty.
Absent such an allegation, there is no basis for concluding that the discussion regarding executive stock option grants in the proxy statements was false. This is not the first time the SEC has filed a case based on years-old conduct or that part of its claims have been held time barred.